Public Bill Committee

[Mr. Joe Benton in the Chair]

Clause 18

Collective proceedings orders

Amendment proposed (this day): 58, in clause 18, page 23, line 9, at end add
(7) Proceedings may be authorised under subsection (1) only if the representative
(a) is authorised to act as representative on an ad hoc basis under the civil Procedure rules, or
(b) is authorised to act as representative and on such terms as specified by order of the Lord Chancellor, in accordance with criteria to be published by the Lord Chancellor for the purposes of this section.
(8) An application by a body to be authorised under subsection (7) is to be made in a form approved by the Lord Chancellor for the purpose.
(9) Before issuing criteria or authorising a body under subsection (7)(b) the Lord Chancellor shall consult the Lord Chief Justice.
(10) The Lord Chief Justice may nominate a judicial office holder to carry out the functions under subsection (8).
(11) In this section
judicial office holder has the same meaning as in section 109(4) of the Constitutional Reform Act 2005;
court means in England and Wales, the High Court, or, in Scotland, the Court of Session.. (Mr. Hoban.)

Question again proposed, That the amendment be made.

Joe Benton: I remind the Committee that with this we are taking clauses 18, 19 and 20 stand part.

Ian Pearson: As I was saying before the Committee rose, existing provisions for collective litigation are rarely used. That is because they are open only to a person who has a claim themselves, and they can represent others only where their claims are the same. Claims that differ, even in minor respects, cannot be represented. Consumers must therefore make individual claims and firms may have to defend thousands of similar actions. For example, complaints about bank overdraft charges generated some 47,000 court cases. It is expensive, time-consuming and inefficient, and there is a risk that the courts will make different and conflicting rulings. As the hon. Member for Fareham acknowledged, the ombudsman service is not a suitable vehicle for dealing with mass claims. For example, the ombudsman cannot make judgments that are binding on both sides, and cannot deal with complex points of law. The ombudsman is not a court, nor should we attempt to convert the service into a court.
Clause 18 provides for the first time a court procedure that will enable financial services claims to be resolved for a group of persons without the need for group members to bring their own claims. A representative may apply to court to bring the collective claim on behalf of the group. The court will then consider whether to authorise collective proceedings.
Before dealing with the amendment, I will say something in relation to the points that the hon. Member for Fareham raised this morning. The Government do not support the introduction of a generic right of collective action. We believe that such rights should be considered for specific sectors. They should be introduced only where needed. It should be a last resort after regulatory options have been considered. That was set out in the Governments response to the Civil Justice Council report, Improving Access to Justice through Collective Actions, which was published in July 2009. That is the approach we are taking here. Financial services have a history of mis-selling and other scandals that throw up mass claims. When regulatory action is not appropriatebecause a legal point needs to be settled, for examplecollective proceedings will provide an efficient way to deal with claims that would otherwise have to be considered individually.

Colin Breed: I agree entirely with that. However, as the Minister will be aware, the problemif that is what it iswith bank charges was that a number of people had their claims dealt with and some got their money back and some did not. Then there was the collective action and a decision was made, but that did not include all the people who settled before the collective action. How do the Government propose to deal with that situation so that a substantial number of cases have not already been dealt with before collective action commences?

Ian Pearson: The hon. Gentleman raises a good point. We will have to see how it works in practice. Perhaps in some cases there will be individual actions and then collective action will be authorised by the court. It will be for the courts to judge when a collective action is right under the powers that we are providing.
Any case that involves generic issues that affect a number of consumers may be appropriate for collective proceedings. There have been instances of widespread mis-selling, for example, of endowment mortgages and payment protection insurance. As the hon. Gentleman has mentioned, consumers have had to pursue individual complaints. They might have benefited if they had had the ability to launch a collective action.
In the recent bank charges case to which the hon. Gentleman referred, the Supreme Court held that overdraft and similar charges could not be assessed for fairness under the Unfair Terms in Consumer Contracts Regulation on the basis of the adequacy of the price paid as against the service provided. In that case, the possibility of collective proceedings would not have made a substantive difference to the position of consumers.
The two measures that we propose complement each other, and are for use in different circumstances. The FSA will have the option of using a redress scheme when, for example, the law is clear. A large number of consumers will benefit without having to go to court, which might also be most cost-effective for the industry. Alternatively, consumers will be able to proceed collectively where the FSA chooses not to take action. Typically, the FSA will not want to act where the law is unclear. There may be other reasons why it will not want to act. It is important to stress the complementary nature of what we are proposing.
There is an element of choice for consumers and their representatives in determining the best way forward. The representative is free to apply for authorisation of the proceedings.

Mark Hoban: My concern is that, as the Minister says, the FSA might not wish to pursue an issue where the law is unclear, and we will be dependent on consumers taking their own legal action to enforce their rights. If the FSAs rules are unclear, would one not expect it to sort that out and ensure that consumers do not need to take action through the courts? Does the Minister draw a distinction between the FSAs rules and the broader contractual law?

Ian Pearson: It is the hon. Gentleman who draws a distinction. I hope that it is never the case that the law is not clear. If the FSAs rules are not clear, the direct answer is that I would expect it to make them clear. In general, as the hon. Gentleman will be aware, the court would be reluctant to authorise collective proceedings if litigation would be less efficient than regulatory action. He made a number of points about getting regulatory action right in the first instance.
It is intended that the FSA, the FOS and the OFT will have a right to be heard by the court to explain the possible alternatives. The court will have an opportunity to assess what is likely to be the best course of action. It will be able to require the representative to explain what it has done to work with the regulators, and whether it has pursued alternative dispute resolution.
Regardless of how the FSA performs its functions, consumers might need to bring legal proceedings in a number of circumstances, and it is right that they have that opportunity. I do not accept that the provisions constitute any recognition that the FSA is not doing its job properly. Consumers who enter into legal relations with financial services providers may sometimes needand wantto bring legal proceedings. The provisions for collective proceedings enable claims to be combined where that is appropriate.
We propose that a representative will be able to act on behalf of a group of consumers where claims contain the same, similar or a related issue of fact or law. As part of that, we do not intend to make changes that move us towards a US-style system. Some have portrayed this provision as doing that. We do not want to see the development of a US-style litigation culture, and there are a number of major differences between the US and UK legal systems which lead me to conclude that that is not likely to happen. In the UK, it is not the case that parties normally bear their own costs. The loser pays principle applies in the UK, which is an effective deterrent to spurious claims. There is no provision for US-style punitive awards or treble damages, and the legal system is not used as a sort of private regulator to allow individuals to hold companies to account. There is no burden of extensive up-front disclosure, no provision for lawyers to take a share of the damages, and no jury trials in which juries can make awards that are exceptional.

Mark Hoban: The Minister says that there is no provision for lawyers to take a share of the damages, but what about no-win, no-fee cases?

Ian Pearson: The hon. Gentleman is right to point to that. What I am trying to explain is that the system here is very different from the one in the United States. We are certainly not signalling in the collective proceedings proposals that we should move in that direction, but we believe that the proposals will be a useful addition and will give consumers more power.

Rob Marris: In non-contentious cases, it is true that lawyers can take a share of the damages, but the cases that we are discussing will all be contentious. In contentious cases, if the successful party is acting under a no-win, no-fee agreement, the lawyer charges what is called a success fee. This Government introduced recoverable success fees so that additional costs are paid by the losing party and do not come out of the damages.

Ian Pearson: I welcome my hon. Friends contribution. He clearly knows a great deal about legal proceedings. I am not legally qualified and am happy to rely on his words of wisdom.
I want to make it clear that significant safeguards are built into our proposals, and that nuisance or speculative claims will not be acceptable. The safeguards are, first, that the clauses are designed to stand alongside clause 26, which confers a new power on the FSA to provide for consumer redress schemes so that only cases that cannot be settled by the regulator will proceed to the courts. Secondly, a group action is a serious matter, and the loser pays principle applies. A representative will need to be able to attract adequate funding. I therefore expect only the strongest cases to be taken forward. Thirdly, there must be strict threshold criteria for authorising a class action. They will be set out in court rules, as I have said. However, as I mentioned, I have also asked for a backstop power to enable the Treasury to set out additional criteria that can be tailored to financial services.
I can see the case for restricting the types of body that can bring claims. We will consult on the nature of any restrictions and, for example, the position of claims management companies and other professional representatives. I do not want to pre-empt the outcome of that consultation, but I am prepared to consider restricting representatives to public interest bodies, consumer groups and those who will not earn a fee for their services.
The first part of amendment 58 calls for the eligibility criteria for authorising a representative to be spelled out in court rules. The Government believe that that is unnecessary. Clause 24(2) states that the court rules will contain the requirements applicable to the representative. I understand that the rules are already being drafted by the civil procedure rules sub-committee in England and Wales, and it is expected that the rules committee will consult on them later this year.
The second part of the amendment creates a designation procedure so that a representative can apply to be authorised before applying to bring an action. I draw the Committees attention to the fact that the court itself will be able to approve a representative in accordance with the rules, so an additional designation procedure seems unduly bureaucratic. If collective proceedings are to work properly, the court will always need to appoint an appropriate representative to represent the group. The suitability of a representative will vary from case to case, so a standardised form of prior approval may be counter-productive.
I agree with the hon. Member for Fareham that it is vital that only suitably qualified persons of appropriate standing should be allowed to bring a class action, and I believe that that should be set out principally in court rules. Subsection (2) of clause 24 gives detailed examples of the kinds of rule that can be madenotably to govern the procedure and content of an application to bring a group action and the criteria for the court to apply in deciding whether to grant it.
I expect the minimum criteria to be either that a representative has a claim or that they are considered by the court to be an appropriate person to act as a representative. The representative will need to satisfy the court that they are suitably qualified. That means that they will probably need to have a litigation plan, which is to say that they will need to have a plan for effectively managing the case and communicating with claimants. We expect that there will need to be strong governance and consultation arrangements that match the size and nature of the class of complainants. Those are the sort of issues that are currently being considered by the Rules Committee and will be consulted on in due course.
In addition, as I hope to set out in more detail when we debate clause 22, the Treasury will have powers to set more detailed eligibility criteria. I expect them to limit eligibility only to appropriate individuals or bodies that have a direct claim of their own, and to bodies of a prescribed type that do not themselves have a direct claim. The Government intend to consult on the nature of any restrictions and, for example, the position of claims management companies and other professional representatives.
I wish to move on and refer briefly to the other clauses that have been grouped with clause 18. The Committee will be aware that the clause, together with clauses 19 to 25, introduces a new form of group action into United Kingdom law. We believe that it is an efficient way to deal with mass claims that currently have to be dealt with individually by the Financial Ombudsman Service and the courts. Many good claims are currently not being dealt with at all because consumers regard complaints and litigation as too difficult. There is a real risk of a multitude of cases being pursued individually, which is why we are dealing with matters under legislation.
Clause 19 creates two bases for collective proceedings, a matter raised by the hon. Member for Fareham. After making a collective proceedings order, the court must decide whether proceedings should be on an opt-in basis or an opt-out basis. In an opt-in case, the claimants who want to take part must identify themselves and agree to be represented. In an opt-out case, all those with an eligible claim will be included automatically without the need to identify themselves. They will be able to opt out of the group within a certain period.
It is important to recognise that financial services cases can differ enormously, for example in their size and complexity and in the legal basis for the claim. That is why it is essential that the court has wide case management powers to deal with claims in a way that suits the particular circumstances of the claims. That includes allowing the court to determine whether collective proceedings should take place and, if so, on what basiswhether it is an opt-in case or an opt-out case. That is why clause 19 makes provision for both opt-in and opt-out proceedings and gives the court the responsibility of deciding the most appropriate, which is the right way to operate.
Clause 20 is more technical. It provides that, when giving a judgment or making an order in collective proceedings, the court must direct whether or not to bind some or all represented persons. For the proposed collective proceedings procedure to work efficiently and fairly, it is necessary that judgments or orders can bind group members. Otherwise, group members will be able to bring individual proceedings even though the judgment in the collective proceedings has gone against them.
If someone has opted in to collective proceedings or has failed to opt out of the proceedings, it is only right that they should be prepared to accept the consequences of the actions of the representative in the proceedings. If collective proceedings are to be an effective tool for resolving casesas we want them to beinvolving large numbers of claims, it is essential for the court to decide that judgments or orders are binding on some or all represented persons or representatives, as appropriate.
Clauses 18, 19 and 20, together with the other clauses that we shall be debating soon, introduce a new form of group action into UK law. It is an efficient way of dealing with mass claims that currently have to be dealt with individually. It will help to improve access to justice; many good claims are currently not dealt with at all.

Mark Hoban: I start with the general argument that the Minister made about why collective proceedings orders are necessary. The starting point was the Ministry of Justice response to the Civil Justice Council report about collective actions. The Ministrys response was that such actions should be used only in particular sectors. I can see a clear argument why the financial services sector, given the number of mis-selling claims in recent years, is appropriate, with a group of cases with similar threads running through them.
The Minister said that, in reality, such actions should be used only when the law was unclear. I thought that an interesting argument, because the law may be unclear in many areas of consumer activity. To pick on that sector spoiled his argument, which supported a more generic right rather than one tailored to the sector, particularly given the degree of regulation involved. I am not sure that he made the most robust case for why the sector should be the one highlighted as the guinea pig.
The same theme came out in the Ministry report. The legislation exists, but we are some way off the detailed rules that will provide the safeguards for which industry is looking. The Minister said that work on them would conclude towards the end of the year, when they will be consulted upon. Later clauses, such as clause 22, give the Treasury regulation-making powers, but we have not seen the draft regulations. The Government have used the Billas the Treasury so often doesas enabling legislation, leaving everyone to trust in secondary legislation that will be brought forward. That position is not satisfactory. The Minister has not given the warmest of reassurances to those who pay attention to our proceedings.
The Minister said that where the law is clear, the consumer redress provisions should be used. I shall talk about the subject when we come to clause 26, but that is not the impression that the general counsel for the Financial Services Authority gave in his evidence to us before Christmas. He indicated that the power could be used in cases in which the law was unclear. There needs to be a safeguard to reflect that, but I shall deal with that point at another time.
The Minister is setting out in the clause, and in other clauses in the group dealing with collective proceedings orders, a framework that will be filled in at a later stage, through either secondary legislation or court rules. I suspect we shall hear that refrain a lot as I talk through the amendments I have tabled. I hope he will go further than saying simply, It has been consulted upon, because there is a lot of concern about the measures, arising from the lack of detailed information about the rules.
The hon. Member for Wolverhampton, South-West suggested that he was surprised I was giving some responsibility to a politicianin this case, the Lord Chancellor. My amendment 58 follows the proposals set out by the Civil Justice Council, which produced a draft Bill, and this is one of its clauses. That point was reached by a group of lawyerssome judges and some practising barristers and solicitorswho had thought through the matter clearly. I assumed that the Government would be rather keener than the Minister has suggested to adopt something of the nature that the group had put forward.
Before I make more substantive comments on clause 19, I take note of the Ministers comments about the implications of clause 20. One of the challenges in such cases is to create certainty of treatment. That issue was in the minds of many people when the bank charges case was going through court. How do we ensure certainty for both claimants and defendants? It is right that measures are in place to fix that, so people know exactly what their position is.
As the Minister said, clause 19 gives some flexibility in choosing between opt-in and opt-out. Arguments have been made in favour of both a pure opt-in and a pure opt-out system; there is no universal consensus. Under an opt-in scheme, consumers would have to identify themselves to a representative bringing a claim; under opt-out, they would be considered automatically unless they said otherwise. The court has responsibility for directing whether proceedings will be brought on an opt-in or opt-out basis.
Such flexibility is reflected in the Civil Justice Councils conclusions where the Government choose to follow its thoughts. Lord Woolf wrote in 1996:
The court should have power to progress
a multi-party situation
on an opt-out or opt-in basis, whichever contributes best to the effective and efficient disposition of the case.
That is an important point.
The Civil Justice Council wrote in its report that
a large number of small claims arising out of a common contractual dispute, holiday claims etc., may be better suited to resolution via an opt-out collective action. If however a consumer claim appears to be inherently suited to individualised litigation that is case managed as a collective action of unitary actions (because, say, the size of the class is very small, and each class member has indicated a wish to sue individually and would probably opt-out to do so, were the proceedings to be brought under an opt-out model), then the certification court could appropriately order that the action be certified as a GLO,
or group litigation order.
In essence, the Civil Justice Council is arguing that if the loss is likely to be the same for all claimants, opt-out is the most appropriate mechanism to deliver justice for those claimants, but if the loss, although subject to common factors, is likely to be highly differentiated among claimants, an opt-in arrangement is more appropriate.
We have heard a number of examples of cases in which that argument might be applied. Equitable Life policyholders have been subject to the same regulatory administrative failures, but the circumstances and nature of each individuals losses are different. Anyone who reads Sir John Chadwicks interim report can see how the different groups might be affected. An opt-out case brought for Equitable Life might not result in an efficient and effective disposition of the case, given the varied interests involved. However, I suspect that the mis-selling of payment protection insurance products would lend itself well to an opt-out system due to the nature of the products and the scale of the loss.

Colin Breed: I am listening carefully, because that is an interesting aspect that I had not considered. Does the hon. Gentleman consider that there might be multiple collective actions representing different complaints or series of complaints against the same company? In other words, different class actions could go on at the same time in the context of the same complaint, because different complainants would be treated differently.

Mark Hoban: Yes, I think that that is right. It is always dangerous to use examples, as they never quite fit the precise circumstances, but in the case of Equitable Life, there are different groups of policyholders. Some people were late joiners. Their complaint against Equitable Life or the regulator would be different from that of the trapped annuitants, who could not leave Equitable Life voluntarily.
In that case, a collective action covering all Equitable Life policyholders would not seem to be the right process, even though they were all subject to problems with Equitable Life and regulatory failure. We can see that an event might trigger not one case but a multitude of cases, whether that is because the policyholders circumstances are different, because they are affected in particular ways, or because the problem has a differential impact on different groups. Therefore, a series of smaller collective actions might be a better way to proceed, rather than a single action that covered all policyholders. That is one of the issues on which we need flexibility on whether to opt in or out. Recognising that need for flexibility, the Civil Justice Council concluded that
This approach is one that does not therefore recommend the introduction of any form of presumption as to whether a collective action should operate on an opt-in or opt-out basis. It is an approach which places the responsibility for designation with the court at the certification stage.
That is, we should leave it to the court to decide whether that is appropriate.
However, the prospect of opt-out triggered concerns among lawyers and others, who felt that it could lead to US-style litigation. Slaughter and May said:
This development heralds the arrival on UK shores of a procedure for consumer litigation, which is in some respects similar, at least in its opt-out form, to the US class action procedure. The result would likely be that large numbers of relatively small claims which individual consumers might currently be unlikely to pursue on an individual basis could be aggregated and brought through collective proceedings.
That is the concern that some have about the opt-out process. However, it is not a universal concern, because the four consumer groups said in their submission:
We do not believe industry concerns that an opt-out process will lead to the development of a US-style class action culture are justified. Opt-out is also a feature of collective redress systems in Portugal and Scandinavia but these countries have not experienced the same problems as the US.
They went on to echo a point that the Minister has made:
It is the particular features of the American legal system, rather than the nature of the opt-out system per se, that have led to the class action culture. In contrast to the US, our legal system is characterised by close judicial supervision and the Bill rightly builds on this tradition by ensuring judicial checks and balances.
Industrys concern is that if the checks and balances are meant to ensure that the opt-out system does not become a US class action process, it would like to see what those checks and balances are more clearly.
On the one hand, consumer groups say that opt-out is necessary and not something to be feared, while on the other hand, industry claims the opposite. So what is the case for a purely opt-out situation? Those who argue in favour of the opt-out must make the case for moving away from the flexibility.
One criticism of restricting the measures to opt-in is that it does not move us very far from the existing set-up. There is already provision to bring a group litigation order; to the minds of some, that is already an opt-in procedure. The Courts Service says:
A group litigation order can be made in any claim where there are multiple parties or claimants to the same cause of action. The order will provide for the case management of claims which give rise to common or related issues of fact or law.
Indeed, it was a group litigation order that Which? used to initiate proceedings against JJB for the price-fixing of football shirts. That gives rise to a further possible argument: in such cases, the amount lost per customer is so minimal as to discourage any complainant from actively becoming involved, and that allows the company to escape justice. The loss per person might be relatively small, although a large number of people are involved. In situations where it is not worth pursuing the case, organisations such as JJB would escape justice. Provided that the authorised person is properly approved, is there any reason why they could not draft more complainants in on an opt-out basis?
Similarly, there are reasons other than the monetary amount that discourage people from involving themselves on an opt-in basis, such as fear of the legal system or simple human inertia. The Association of British Insurers said:
if these reasons act as a disincentive for a consumer to opt-in to joining a CCR action, why should the same consumer with the same social and psychological issues be forced by default to participate in litigation on an opt-out basis?
For the ABI, clearly one of the arguments on opting in is that it makes sure that everyone possible is involved in the measure. One of the criticisms of opting in is that it requires people to overcome their inertia and reluctance to engage. If people are automatically assumed to be part of a class action, will they really volunteer to opt out? It is almost the reverse of the nudge argument.
We want the default position to be right for the person, so that it gets them to do what is instinctively right. I sense that one of the reasons for an opt-out process is that it automatically assumes that the individual would like to be part of litigation and to pursue their case, and that they should therefore be in a position to pursue that litigation, even if they are not actively engaged. That assumes that the right safeguards are in place in cases where opt-out is appropriate. It is a strong argument for universal application of an opt-out. In the evidence sessions, Jane Vass from Age Concern and Help the Aged said:
We particularly welcome the proposal for collective proceedings with an opt-out procedure, which will redress a great imbalance for older people, who often are not in a position to make a complaint themselves if they are socially isolated, if they do not have support, if they are immobile, or if they just do not have access to the available forms of information.[Official Report, Financial Services Public Bill Committee, 8 December 2009; c. 50, Q140.]
The ABI suggested that an opt-out system would be a dramatic shift in the process of law in the United Kingdom that raised serious constitutional and human rights issues. In the first instance, it felt that the impact of opt-out systems on the due process rules, as enshrined in the European convention on human rights, was unclear. It felt that individuals should not be made to be claimants without their knowledge or explicit consent. It also said that defendants have a fundamental right to know who is accusing them of unlawful conduct, so the creation of an opt-out consumer collective redress is likely to give rise to fundamental reconsiderations of the philosophical basis for European legal traditions. I suspect that that fundamental reconsideration is outside the scope of the Committee, but the ABIs response demonstrates our concern about making significant moves to change the legal framework for bringing such actions in a narrow sector, when there are wider considerations to be thought about. It is also a reminder of why we are worried about the lack of evidence on what safeguards will be in place.
If there is to be such a fundamental change, we need to move with caution and ensure that there are adequate safeguards. If the fears about US-style litigious culture are well founded, we must make sure that proper safeguards are in place. The European Justice Forum, which I spoke about this morning, said in its representation on the subject:
Class actions are an exceptionally powerful and potentially dangerous instrument, as evidenced by the experience of other countries. If they are to be used at all they must be contained within carefully designed provisions that will avoid abusive claims and ill founded litigation.
My conclusion is that while there are some strong arguments for a pure opt-out, there are valid concerns about why it would be inappropriate to allow only opt-outs, given our legal system and the safeguards. The Civil Justice Council has got it about right: it says that there should some flexibility, and that that flexibility should be determined by the court, based on the circumstances of each individual case.
By rehearsing the arguments on whether there should be an opt-in or an opt-out system, we have demonstrated some of the tensions underlying the introduction of such actions, and reinforced the need for further safeguards. That was the point of amendment 58.
The Minister says that the issue will be part of the consultation on the court rules, and I welcome that. However, there is a lack of transparency about the process at the moment, although the Minister has shed some light on it. It would be helpful if more information were shared with the Committee on how the legislation will go forward and how the details will be filled in. That would be helpful, and might provide reassurance to those who take an interest in such matters.

Ian Pearson: In the course of debate in Committee, we shall provide additional detail, which may help those who follow our proceedings. However, as I said a few moments ago, there will be court rules, which will be consulted on. That is important.
I want to go back to two points made by the hon. Member for Fareham. First, I want to make it clear that financial services is a sector in which there has been a history of mis-selling and other scandals, and that is why the Government think the sector appropriate for collective proceedings. Consumer complaints, for instance, have risen from 31,000 in 2001 to 128,000 in the year to March 2009. It is intended that collective proceedings will be appropriate not just where the law is unclear, although obviously, where the law is unclear, collective proceedings will definitely be relevant.

Mark Hoban: Where the law is clear, should we not expect the regulator to take action and not require consumers to go through the court process?

Ian Pearson: The hon. Gentleman talked about defaults, and the default position is that we have effective regulation, which should sort out problems. However, in real life, in some areas individuals will always have complaints, which they may feel have not been adequately addressed. We should not circumscribe the rights of individuals who want to take legal action. In the Bill, we are helping the action to take place on a collective rather than an individual basis.
The hon. Gentleman made a number of points on both sides of the argument. He gave the views of the consumer advocacy groups, which are strongly in favour; and mentioned some of the concerns felt by people in the industry about how the system might operate. I think that he came down on the side of saying that we ought to have the provisions in the Bill. It is important that we have both opt-in and opt-out. I want to emphasise that there is no necessary, once-and-for-all division between having an opt-in case and an opt-out case; cases may need elements of either procedure. The hon. Gentleman gave some examples of why different approaches might be necessary. Certainly, clause 19 provides for the court to be able to change the basis from opt-out to opt-in as issues and circumstances arise.
For example, after the generic issues have been determined, it might be helpful if the court could require group members to opt in. The court could then deal with individual distinctions and issues for the purposes of making different awards and categories. We can all foresee instances in which cases might continue on one basis, but we can also envisage situations in which one might need to switch during the course of the case. Having the flexibility to do so is important, and giving that power to the court is the right thing to do. I think that that answers the broad thrust of the last of the hon. Gentlemans arguments, and I hope that the Committee can agree to clauses 18, 19 and 20.
Mr. Hobanrose

Ian Pearson: I think that the hon. Gentleman was about to withdraw his amendment.

Mark Hoban: As the Minister helpfully prompts from a sedentary position, I think I was about to withdraw my amendment.
I do not expect the Minister to respond on this point, because we have a difference of view on the subject, but my concern is still that the regulator should be in a position to take action where the law is clear and where a regulatory matter has given rise to the concerns. There is a danger that the regulators will be able to push to one side their responsibility for consumer redress and for ensuring that the consumer problem is resolved by saying, Its okay; if they are that concerned, they can take it to court. That is not the position that we should be in.
That highlights a gap that has emerged since the introduction of FSMA. The Financial Ombudsman Service, which is the alternative dispute resolution mechanism and point of contact for individual consumers seeking to resolve a dispute that they have with a provider, has filled a vacuum. In large group actions where there is widespread evidence of mis-selling, whether of mortgages or of PPI, the FOS seems to be taking on a role in resolving those complaints, which, in a way, is outside its remit. However, if it had not filled that vacuum, I am not sure what would have happened. There would certainly have been a pressing need for a collective action order.
There is a weakness in the regulatory structure. That issue might be addressed when we discuss consumer redress under clause 26, but it remains my nagging doubt that we still have not tackled it properly. The Ministry of Justice said that we need to look at individual sectors, and the Civil Justice Council said that we must look at the alternative procedures. I do not think that we have properly looked at alternative procedures that would improve the regulatory system and ensure that consumers did not need to have recourse to law to resolve their rights. Having made that point again, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 ordered to stand part of the Bill.

Clauses 19 and 20 ordered to stand part of the Bill.

Clause 21

Meaning of financial services claim

Mark Hoban: I beg to move amendment 59, in clause 21, page 24, line 14, at end insert , and
(c) is brought by or on behalf of (and is limited to) persons who are consumers;.

Joe Benton: With this it will be convenient to discuss amendment 60, in clause 21, page 25, line 15, at end add
(8) In this section consumer means any natural person, who in the matters to which the claim relates, is acting for purposes which are outside his trade, business or profession..

Mark Hoban: Clause 21 sets out the definition of a financial services claim in the context of who the defendant might be. It mentions an
Authorised person; authorised person who is an investment firm or credit institution; person acting as an appointed representative; payment service provider; a person carrying on a business of a kind mentioned in section 226A(3) of FSMA.
I want to ensure that the redress or collective proceedings process covers not only people who are authorised by the FSA, but those who have undertaken consumer credit action. We know that those who are provided with consumer credit fall outside the remit of the FSA. However, we do not have a definition of who brings the complaintthe claimantin this process. Amendment 59 would introduce a new paragraph (c), while new subsection (8) defines a consumer.
That creates further clarity regarding who is bringing the complaint and what the process is. Without defining who has suffered the loss, it is difficult to say what a complaint actually is. We need symmetry. We have identified the defendants, but should we not identify who is in a position to make claims? It is a relatively straightforward amendment.

Ian Pearson: The effect of the amendments is to exclude small and large businesses by virtue of the definition of consumer given by the hon. Member for Fareham in amendment 60. I will explain why we believe it right to include in the scope of class actions businesses, especially small businesses, as well as charities, the self-employed and individuals acting in a professional capacity.
The definition of those whose claims can be represented is related closely to the definition of consumer in the Financial Services and Markets Act 2000. I consider it important to maintain the relationship between those who may benefit from regulation and those who may benefit from collective proceedings. It is advisable and desirable to avoid a situation in which a firm and an individual are protected by the same regulation, but the individual has access to greater or better routes of redress. I also do not see any reason why court proceedings brought by large businesses should not benefit from the more effective group litigation procedures, although for small businesses, charities and the self-employed, the scope to act in that way is clearly highly important.
The collective proceedings procedure does not create new liabilities or claims; it is simply a more efficient way of dealing with a number of similar claims. If a group of firms or professionals have valid claims, it seems to me that they should be able to apply for a class action if that is the most efficient way of handling those claims. For their claim to be valid, businesses will have to show that they have cases with generic issues that can be dealt with on a group basis by a representative. The court will be able to authorise the action only if that is the most appropriate way of disposing of the issues. To my mind and the Governments, the same logic applies to businesses and to individuals.
Perhaps the hon. Gentleman is concerned that the clause would allow commercial creditors to apply for a class action against a financial services provider. I draw the Committees attention to the definition in clause 21(1) of what types of claim they might be able to make through a class action. It is limited to cases in which they could show that their claim was connected with carrying on a regulated activity or dealing with the authorised person in the course of a regulated activity.
Ultimately, of course, it is for the court to decide the most appropriate way to manage a large number of claims. I believe that our approach is preferable to excluding a whole category of potential claimants, as the hon. Gentlemans amendment would. I hope that I have persuaded him not to press his amendment.

Mark Hoban: It is an interesting interpretation of my amendment. I would not say that it prevented a plumbing company that took part in a regulated transaction, for example, from pursuing a claim. I certainly expect that it would prevent a bank from suing another bank or a group of professional investors from suing another institution. I do not think that it would stop most businesses from taking part in a class action.
My amendment is targeted predominantly at consumers: ordinary people in the street who buy financial services products. My impression was that it aims not to enable a string of corporates to take part in actions but to help people who might feel that they were not properly represented or could not afford to bring an action. The Ministers explanation seems to have widened the scope of who could bring an action beyond what I think most people reading the Bill would assume.
I tabled the amendment to tease out who the Government expect to benefit from the provisions. It seems that anyone, whether they are wholly unfamiliar with the legal system or a large multinational, can use them. They are presented as a measure to help consumers rather than corporates, so the Ministers response indicates how wide the group of claimants can be. It is much wider than I think people assumed before he responded.
Although I will withdraw the amendment, tabling it has clarified who the Government expect to take part in the process. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22

Regulations about collective proceedings

Mark Hoban: I beg to move amendment 61, in clause 22, page 25, line 19, leave out from Authority to are in line 20 and insert
and the Office of Fair Trading.
The purpose of the amendment is to tease out the rationale behind the inclusion of the financial ombudsman in the list of parties in subsection (2)(a) that are entitled to be heard on an application for a collective proceedings order. Given that the Bill applies to transactions regulated by either the FSA or the Office for Fair Trading, it is clear why they have the right to be heard on an application, but the ombudsman is not a regulator; the ombudsman is an alternative dispute resolution body.
The purpose of including the ombudsman is not clear. Is it now deemed to be a quasi-regulator? I know that some people in the industry see it as such. Is it because the ombudsman is in a position to collect data through the number of claims that it receives? The Minister gave us figures earlier about how many complaints it receives. Is it because the ombudsman can identify when large numbers of claims are being made about a particular firm, product or service? Is it there to provide insight into the development or generation of a claim made to the courts? It would be helpful if the Minister explained the purpose of including the ombudsman.

Rob Marris: The hon. Gentleman might be reading the clause slightly differently from me. It does not give the ombudsman the right to be heard in the claim itself; it gives the ombudsman the right to be heard on an application for a collective proceedings order, which is rather different.

Mark Hoban: Yes, but my point remains. Why is the ombudsman there, given that the two other bodies are regulators and the ombudsman is a way of resolving disputes? What standing has the ombudsman been given in the process?

Ian Pearson: Let me clarify the Governments intentions. I will say at the outset that it is always preferable to find a regulatory solution, and the changes that we are making to the FSAs redress powers in clause 26 are designed to make it more likely that a regulatory solution will happen. However, that will not always be possible. It will be for the court to determine in the light of evidence from the OFT, the FSA and the Financial Ombudsman Service, as appropriate, whether collective proceedings are the most suitable means of dealing with the case.
The amendment invites debate about why the financial ombudsman should be included, given its different status. Clearly, the FSA and OFT have variable information. I note that the hon. Gentleman does not dispute that they should be heard when the court is deciding whether such proceedings should take place.
Admittedly, the Financial Ombudsman Service is in a somewhat different position. The ombudsman cannot offer a collective alternative to collective proceedings and can only hear cases on an individual basis, and its determinations are not automatically binding on the consumer. However, the Financial Ombudsman Service will be able to make representations to the court about such things as the suitability of the ombudsman to deal with the cases. It may also tell the court about the volume of complaints that it has received and what it plans to do with them. It will also be important for the court to know whether the ombudsman has resolved any cases.
Such information should assist the court in making its decision. For example, the court will need to decide whether the ombudsman and the county courts would offer a better solution. The court would also need to decide whether collective proceedings and complaints to the ombudsman can continue in tandem. Finally, the court will need to know whether the ombudsman is planning to dismiss the cases and whether that is dependent on a collective proceedings order being made. It is to be expected that in many cases the ombudsman may well be preferred over collective proceedings, because it may be able to offer a cheap and informal solution for all or for a significant number of the claims. For such reasons, we believe that it is important that the voice of the ombudsman is heard and that the information it is able to provide can be made available to the courts. I hope that provides helpful clarification to the hon. Member for Fareham.

Rob Marris: I certainly agree with the Minister. If the court is to be assisted, potentially, why is the court not to be given the power to require such bodies to attend? The provision simply says words to the effect, in lay terms, that they can come along if they want to. If they are to be of so much assistance to the court, which I agree they would be, why does the Bill not say that the court can require them to come along?

Ian Pearson: I cannot answer my hon. Friend immediately about the legal drafting of the clause, but I can tell him about the policy effect. We want the FSA, the Office of Fair Trading and the Financial Ombudsman Service to be able to provide information to the courts that enables them to make decisions. I do not think that there will be any reluctance to do so. That is clearly the policy intention, which I believe the legislation before us is effective in achieving, but if there are any drafting points, I shall go back to my officials and make sure that the legislation does what we want it to do in policy terms.

Mark Hoban: I am grateful to the Minister for his response. He clarifies ably the purpose of having the Financial Ombudsman Service hereit is not because it is a regulator, but because it will have access to information that will help the court decide whether such a case may proceed. I am sure that the ombudsmans work will help inform some of the conclusions that a court may wish to reach about the best process for resolving such matters.
In recent years the ombudsman has become more involved in the resolution of multiple claims with a single cause, moving away from its position of simply looking at individual, isolated cases. For the court to be able to use that knowledge in determining how a case should be managed is right. I suspect that there would be no need to compel the ombudsman or the others to take part in such proceedings, because regulators should be jealous of their role in trying to resolve the issuesthey would see a court solution as a welcome one. They would all want a resolution, even through the ombudsmans alternative dispute resolution vehicle, while the OFT or FSA would want to demonstrate to the court what they can do to resolve the matter. Otherwise, increasingly, questions would be asked about the effectiveness of the regulators, so they would want to be in the court to say what they have done and how they can resolve it. Compelling those bodies to attend the court would probably not add much to the process. Having heard the Ministers explanation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment 62, clause 22, page 25, leave out lines 22 to 29.
Clause 22 sets out the Treasurys regulation-making power in the Bill, in connection with collective proceedings. There is an issue about who should determine the ground rules for such cases. I expect the hon. Member for Wolverhampton, South-West fully to support the amendment, on the basis of his comments on amendment 58, where he accused me of giving power to politicians. In this case, I want to take power away from politicians by restricting the Treasurys right to make regulations in three areas. Those areas are: what matters the court should have regard to; the circumstances under which the court may make an order; and in paragraph (d), I do not believe that the regulations should provide for what collective proceedings may or may not include. I argue that that should be done by court rules rather than by regulation-making powers. The risk is that the Treasury will get too involved in the detail of what happens in court and the way that the cases are handled, and I am not sure that that would be entirely appropriate.

Rob Marris: I do not anticipate supporting the amendments, and I say to the hon. Member for Fareham that they are different from amendment 58. Amendment 58 set up a politician, the Lord Chancellor, as a gatekeeper regarding who would have access to exercise their legal rights. The subsections that the hon. Gentleman seeks to delete do not set up a politician as a gatekeeper in individual cases.

Ian Pearson: It might be helpful to the Committee if I explained what we seek to do in the lines that the hon. Member for Fareham proposes to delete with his amendment. The idea is to have a reserve power to make regulations that set out extra criteria for the court to take into account. I will explain why we feel that reserve power to be necessary. First, I agree with the hon. Gentleman in that I expect the main criteria to be in the court rules. Those will be generic in nature, and are intended to apply to class actions generally. It may be necessary to tailor the effect of the court rulesonce they have been finishedto the characteristics of financial services. That might mean adding supplementary requirements to those set out in the court rules, which is why a reserve power may be necessary.
I am confident that the court rules will be comprehensive and contain the necessary safeguards to prevent nuisance claims. The rules will also seek to eliminate any possibility of the new process being open to abuse. However, if any additional safeguards are needed for financial services, the clause allows the Treasury to supply them. For example, we expect that the court rules will have tests to ensure that litigation is a last resort, that costs are addressed, that the representative is appropriate and that a class action is the most appropriate way to resolve the issues that claimants have in common. Looking beyond that, it may be necessary or desirable to put into Treasury regulations a requirement for the court to examine the merits of a case before authorising it; or for the court to have regard to any particular action being taken by the regulator.
Another area that may be addressed by the Treasury via the power is the criteria for eligibility to bring an action. For example, the Treasury might wish to use the power to restrict the category of persons who can act as representatives, something that we touched on earlier when we said that we would want to consult. We will want to consider carefully whether representatives should be restricted to public interest bodies or those who would not earn a fee for their services, a point that we have also mentioned before.
I appreciate the point made by the hon. Member for Fareham when he said that the court rules are not yet in existence and that we are talking about a framework. The rules committee is expected to consult on the draft rules in due course, so it is not possible to say exactly what the Treasury might want to specify in our regulations as we first want to look at the court rules to see whether they provide sufficient safeguards and then consider whether further or different provision is needed for class actions relating specifically to financial services. It is prudent that we have a reserve power, and accepting the amendment would reduce the flexibility of the Treasury to tailor collective proceedings to the particular features of financial services. Both consumer groups and the industry would want to make sure that our approach is properly tailored.
As is the normal procedure, we would, of course, consult on the regulations if we decide that it is necessary for them to be introduced to ensure that they work well in conjunction with the court rules. Because the amendment will remove potentially needed flexibility, I hope that the hon. Member for Fareham will withdraw it.

Mark Hoban: I have to say that, as the debate continues, I have become more wary and perhaps uneasy about the measures. That is not necessarily because I disagree with their principle, but because no one is actually sure where they will end up. The Minister referred to the powers as reserve powers to tighten up the rules made by the court, but I am interested to know whether reserve powers will be needed because the rules committee has not come up with the draft rules yet and, because we do not have them, we cannot have draft regulations. It sounds as though we are in a territory where the Government want as much power as possible just in case the court does not do what they expect it to do.
The hon. Gentleman talked about tightening up the eligibility criteria or changing the rules governing who can be a representative, but if the Treasury believes that it needs to override the rules committee, are there adequate safeguards to ensure that there is proper parliamentary scrutiny of the Treasurys ability to take such action? Under subsection (6) of clause 22, the regulatory-making powers are subject to the negative resolution procedure. If the power is a reserve power to tackle what the Government regard as being inappropriately loose rules drawn up by a court, why should they be able to interfere with those rules simply by issuing an order that goes through the negative resolution procedure?
There should be much greater safeguards governing the exercise of the use of what are apparently reserve powers under the Bill than is currently set out in the clause. There is nothing in the provisions that tells me that the powers are secondary to the court rules. There could be circumstances in which the Government say that the powers take precedence over court rules. What provisions in the Bill will ensure that the powers are reserve powers, to which the Minister referred? Nothing tells me that that is the case. There is a weakness in the drafting of the clause as it seems to give the main power to the Treasury, not the court. We should receive greater clarification of the matter in the Bill. However, as that proposal does not relate to my amendment, which would delete paragraphs (b), (c) and (d), I cannot press it further. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment 63, in clause 22, page 25, line 30, leave out paragraph (e) and insert
(e) suspend any limitation provision applicable to members of a class represented within the collective proceedings,.

Joe Benton: With this it will be convenient to discuss amendment 64, in clause 22, page 25, line 35, leave out subsection (3) and insert
(3) Regulations made by virtue of subsection (2)(e)
(a) shall provide that any applicable limitation period will be suspended in favour of a class member on a specified date and will resume running against the class member on the occurrence of specified events, and
(b) may make similar provision with respect to the period within which any appeal in collective proceedings is being finally determined.
No provision may be made about periods before the commencement of collective proceedings..

Mark Hoban: The amendments continue the theme in clause 22 on the apparently reserved powers that the Government have sought. It relates to limitation, and in clause 22(2)(e) the Treasury has the power to
modify the effect of any limitation provision.
Amendment 63 takes out paragraph (e) and inserts
suspend any limitation provision applicable to members of a class represented within the collective proceedings.
Amendment 64 gives more detail about what the regulations might be able to cover. The origin of the two amendments goes back to the recommendations of the Civil Justice Council. They probe why the Government seem to have strayed from the CJCs recommendations on collective proceedings. We have here the power to change the effect of limitation provision. The explanatory note tells us that the powers could be used
to stop time running in respect of claims made in respect of collective proceedings.
Paragraph (e) currently allows the Treasury to
modify the effect of any limitation provision.
Subsection (3) gives some detail on what the modifications might entail. They can prescribe cases where no account is taken of any limitation provision and, among other things, enable the court to take no account of any specified period.
The Civil Justice Council outlined the principle on limitation provisions in its report. It says:
It is recommended that limitation should be suspended when a putative representative party issues a claim which seeks certification as an opt-out collective action. At that point all the members of the represented class are potentially before the court by way of representation and have therefore potentially issued a claim by representation. The suspension of limitation should be lifted and time should start running for the class members where certification is refused or they opt-out of the action.
In a sense, it says that, while the action is taking place, while cases are being heard within the collective action, the limitation should stop. The time should not tick on the clock. However, if a party decides for some reason to opt out during the case, or the certification is refused, the limitation should continue to run. The recommendations continue:
Equally, the suspension should be lifted if the claim once certified is then at a future stage decertified or if on certification the court draws the boundaries of the class on a narrower basis than the representative party had originally drawn them in the claim as issued or the class member for some other reason ceases to be part of the class.
It is therefore looking for more detailed guidance about the circumstances in which the limitation can be suspended. When that suspension stops, it looks at examples from overseas and gives an example from the Australian federal collective action scheme, which reads:
Suspension of limitation periods
(1) Upon the commencement of a representative proceeding, the running of any limitation period that applies to the claim of a group member to which the proceeding relates is suspended.
(2) The limitation period does not begin to run again unless either the member opts out of the proceeding under section 33J or the proceeding, and any appeals arising from the proceeding, are determined without finally disposing of the group members claim.
The breadth of the drafting in the Bill gives the Treasury the discretion to depart from the principles. My amendments take the Bill closer to the safeguards set out by the Civil Justice Council. It would appear that the councils recommended safeguards reflect best practice elsewhere, so I am keen to understand why the Government have sought to move away from them.

Ian Pearson: First, on amendment 63, I am not sure that it is necessary to clarify that the provision applies to members of a class action, as that is self-evident. I think that the main bone of contention is amendment 64. I am glad that the hon. Gentleman recognises that it might be necessary to preserve an individuals right of action if their claim would be timed out before a group action concludes. That is one reason why subsection (2)(e) is needed. It will deal with claimants who began their individual claim before a class action began. They should not be exposed to hitting a time bar while a class action proceeds, and they might need a grace period before resuming action on their claims.
There might be other circumstances not reflected in the proposed amendments in which it is appropriate to suspend limitation: for example, when a class action ends before a final judgment. Separate claims represented may then be brought in their own right. Limitation could be suspended for a period to allow represented claims to begin separately in their own right. Again, they might need a grace period before resuming action.
The amendments do not cover all the possible circumstances in which limitation might need to be varied for strictly technical purposes. Instead of specifying a list of circumstances in which limitation may be varied, it seems more effective and flexible to have a general provision. That is what we propose. It is clear on the face of the Bill. If we were to specify in the Bill the circumstances in which limitation can be modified, we might find in future circumstances in which it is appropriate to suspend limitation that we cannot do so. That is why I am reluctant to put more detail into the Bill, although I recognise the hon. Gentlemans points.
However, I reassure the Committee that the power can be used only in connection with collective proceedings. It cannot be used to disregard periods of limitation for any other purpose than securing an effective and fair consideration of a collective proceeding. For those reasons, I believe that the amendments are not necessary, and I urge the hon. Gentleman not to press them.

Mark Hoban: Part of the problem is that the Government, in trying to maximise their flexibility and avoid too much constraint, are deploying that flexibility at the expense of greater clarity and certainty. It is a dull point to return to, but if the process had been further along the track before the Bill came along, it might have clarified a number of doubts about the operation of the provisions. The timing is not great, frankly. We are introducing legislative proposals that create huge uncertainty while the safeguards are not yet in such a state that people can refer to and gain comfort and reassurance from them. That is part of the challenge with which we are dealing. Some are demanding greater certainty and clarity about the use of the powers than is available in the Bill. That is what the amendments aim to tease out from the Minister.
I will not press amendments 63 and 64, but there is a challenge here that must be addressed. The clauses are creating debate and concern because the process is taking place in a vacuum and we do not have sight of draft rules or regulations. That is the problem that we are going to have. The Ministers remarks might be sufficient to satisfy people outside the House, but we will have to consider the provisions again on Report or during proceedings in the other place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22 ordered to stand part of the Bill.

Clause 23

Regulations under section 22(1): damages

Mark Hoban: I beg to move amendment 65, in clause 23, page 26, line 20, leave out paragraph (a) and insert
(a) to make a single award of damages in respect of all or some of those claims if the aggregate of the defendants liability to some or all class members can be determined by a reasonably accurate assessment and without proof by individual class members,.

Joe Benton: With this it will be convenient to discuss amendment 66, in clause 23, page 26, line 25, at end insert
(3A) The regulations must require the court, before making an order under subsection (3), to provide the defendant with an opportunity to make submissions to the court in respect of any matter relating to a proposed aggregate damages award..

Mark Hoban: The amendments are to clause 23, which gives the Treasury the power to make regulations concerning damages. I am not clear about the interaction between the regulation-making power and the court rules, whether the powers are reserve powers, or whether we will see regulations that will drive the court rule process. Perhaps the Minister can provide some clarification on that. In clause 22(2)(f), the Treasury is enabled to make regulations about the award of damages, and clause 23 sets out the scope of the regulations in more detail. The key part is subsection (2), which says:
The regulations may enable the court to make an award of damages without undertaking an assessment of the amount of damages recoverable in respect of each claim comprised in the proceedings.
With collective proceedings, what happens when we get to the end of the case? What sort of ruling does the court make on the damages that are to be awarded against the defendant, and how does that reflect the experiences of each claimant? That method will be useful in dealing with a lot of claims all at once, and it would be particularly helpful in dealing with opt-out proceedings.
There are two approaches in clause 23. Subsection (3)(a) says that the court can make a total estimate of damages, based on the damages likely to be awarded to individual complainants. It can think about the loss that each individual claimant might have made, and use that as the basis for calculating the total estimate of damages. If the court knows that everybody lost £5 as a consequence of a policy being mis-sold, it would be relatively straightforward to determine the total estimate of losses. Alternatively, in subsection (3)(b) a formula specified by the court is used to calculate the level of damages.
Another issue is the departure from the principles laid down by the CJC. In its recommendations, the CJC called for the Lord Chancellor to conduct a wider policy debate on the issues, given the interaction of this law with substantive law. Will the Minister tell the Committee whether that wider policy debate has taken place and what its outcome was? Has that recommendation been ignored, and if so, why?
On the proposals, the CJC endorses something along the lines of what is written in subsection (3)(a), which is a principle known as damage aggregation. Damage aggregation is characterised by
a computation of damages that does not depend upon the summation of the class members actual loss and damage. It is a means of quantifying and proving loss not by reference to an individual claimant but by treating the entire class as a unitary entity and assessing the global damage suffered by the entire class. In that respect, an aggregate assessment can practically occur by either a global or lump sum awarded against the defendant, or it may be achieved by a formula applied on a class-wide basis that determines individual class members entitlements. Once the aggregate award is made then it is either for the court to assess individual class members entitlement to a share of the global sum or it is for the individual class members to prove their entitlement to a share.
We can see an attempt at the damage aggregation principle in subsection (3), but the wording is different from that used by the CJC, which says that the principle
does not depend on the summation of the class members actual loss,
and is a means of calculating the loss
not by reference to an individual claimant.
There is divergence here: subsection (3)(a) seems to be a summation rather than an aggregation, whereas the principle set out in the Civil Justice Council paper was an aggregation. I am interested to know why the Government have decided to go down the summation route rather than the aggregation route.
The issue about aggregation is not just about a claimants perspective but about the defendants perspective. The Civil Justice Council made the point about providing greater certainty for defendants:
Damage aggregation...ensures that the defendant has certainty and finality in terms of their liability to all claimants who have suffered detriment, especially where class members who have not yet joined the beneficiaries have an opportunity to opt-in to the award or court approved settlement; the award ensures that each claimant will get fair compensation predicated on the totality of harm caused both by the defendant per se and to each claimant on an individual basis; it thus serves to ensure that claimants are properly compensated and that defendants are not left in possession of any financial benefit derived from their unjust conduct; it thus through its primarily compensatory basis serves to assist and complement public regulatory action.
In such a case, the defendants will know the total amount that they have to pay, and the money is then allocated to each claimant on the basis determined by the court. Subsection (3)(a) suggests simply totalling up the losses that each individual has suffered. We have tabled amendments 65 and 66 to move away from summation to the aggregation approach proposed by the Civil Justice Council.

Ian Pearson: The amendments relate to a Treasury power to make regulations about damages. I think that the hon. Gentleman accepts the necessity of enabling the court to award damages without undertaking an assessment of each individual claim. Instead, the court may make an estimate of the damages for the whole group of claimants, or set out a formula for assessing the damages for each claimant. That will enable the courts to deal quickly and efficiently with cases involving detriment to large numbers of consumers. It is an essential component of the ability to manage a class action.
The clause sets out some illustrative examples of what the regulations may cover. The list is not exhaustive. The proposed amendments clarify that a court may make an award to all or some claimants, provided that liability can be assessed reasonably accurately and without proof from individual members. The language in the example in the clause does not exclude a power for the Treasury to permit aggregated damages for a subgroup of persons. The clause refers to an award in respect of different kinds of claims in a class action. As I say, the list is illustrative. It would be consistent if an award could be made to a subgroup of cases. Clause 24, which we shall come on to, envisages subgroups being formed.
The amendments would also give defendants the right to make submissions to the court about an aggregate damages award. Providing a specific right for the defendant to make submissions is not necessary, because defendants have a right to be heard throughout the proceedings. However, I agree with the hon. Member for Fareham that a court should be able to make an award to some and not all claimants, if that is the right thing to do, but there is a danger of the amendments straying on to territory covered by generic court rules.
I fear that the hon. Gentleman will not be satisfied with the response that the issue will be covered in the rules, but my general point, which I have made in previous debates on such matters, is that the measures will not come into force until the court rules and the Treasury regulations have been consulted on and put in place. There will be ample opportunity for the industry, consumer groups and others to make representations on them. The court rules are highly likely to provide for the management of subclasses of claimants and may provide for a specific right to make submissions about damages to the court.
I assure the hon. Gentleman that his concerns, as set out in the amendments, will be taken on board when developing the rules. As he is aware, we have set out our sectoral approach to collective proceedings, and we will consult on the regulations. Our response to the CJC recommendations has been to say that further work will be done on damages by the Lord Chancellor. We have worked closely with the Ministry of Justice and will continue to do so to co-ordinate policy on aggregated damages. We have sought to ensure broad consistency with Civil Justice Council thinking on such issues, and there will be opportunity for individuals, the industry and consumer groups to comment on the detail of the regulations. It is for those reasons that I do not believe that the amendments are necessary, and I urge the hon. Gentleman to withdraw them.

Mark Hoban: I am grateful to the Minister for his response, in which he gently reminded me that I had not spoken much at all about amendment 66, which is about the right for the defendant to be heard before an award is made for aggregated damages. I am pleased by his reassurance that the defendant will have a right to be heard throughout the case, including on the important issue that we are discussing.
In a way, the debate is taking place in a vacuum. We have had the opportunity in this and previous debates to identify some of the issues to do with safeguards in the Bill that are causing people concern. Knowing that the rules committee will examine the matter is helpful. It will be a challenge to ensure that the Bill makes clear the relationship between the court rules and the regulations, and makes it clear that the powers are reserve powers, a matter to which I shall return on Report. However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment 67, in clause 23, page 26, line 38, leave out from applied to end of line 39 and insert
in a manner that may reasonably be expected to benefit class members..
The amendment deals with a further aspect of the clause and relates to matters arising from an opt-out basis. What happens when the court produces the award of damages and not everyone comes forward to claim their share of the damages? We have an opt-out court process, but how do we know that the final award will be distributed to all the potential claimants? Some balance might be left at the end. Under subsection (5)(b), there is
provision about the purposes for which any money not paid to represented persons is to be applied.
My amendment would modify the wording that follows in brackets. It would remove
(which may include charitable or other purposes)
and make the provision more specific, inserting
in a manner that may reasonably be expected to benefit class members,
because there is concern about what purpose the residual money will be used for. Should we try to find a way to use any unclaimed money to benefit the people who have been part of the collective proceedings order?
The vagueness of other purposes causes concern. There is also a legal principle at issue involving the pursuit of something called a cy-prĂ¨s distribution, where aggregate damages result in unpaid moneys remaining when all payment has been satisfied. What will happen to the excess?
The Civil Justice Council says:
Where collective actions are pursued on an opt-out basis experience shows that there is the likelihood that there will remain an unclaimed residue of the judgment damages award, especially where damage aggregation occurs, or the settlement award.
The question then is: what is a fair and just use for such money? Which? says:
A cy-prĂ¨s distribution of damages is needed: This ensures any money left over from damages paid out to eligible consumers can be used in a way specifically related to the claim, for example to fund financial education or some other specific consumer-based project, rather than returned to the defendant.
That means that the court can determine what damages the defendant should pay to reflect the gravity of the case, and that the defendant should not benefit if money is left over at the end of the day, but should pay the full price to the subject of the claim.
The Civil Justice Council recommended that
a trustee be appointed to administer any judgment or settlement award or alternatively that the representative party hold such a sum as trustee for the class, and that where after a proper period of time with proper and proportionate notice given to the class an unclaimed residue remains that residue be applied by the trustee according to general trust law principles. In appropriate cases, this unclaimed residue could on this basis be distributed to a Foundation or Trust.
My amendment draws the uses to which the unclaimed residue could be put rather more tightly than the Bill does; the Bill says:
(which may include charitable or other purposes).
Amendment 67 would tweak the rules back, so that the process was closer to that which the Civil Justice Council thought ought to take place when it published its report in 2008.

Ian Pearson: The amendment provides that any undistributed surplus from a damages award should be applied in a way that benefits class members. I understand and appreciate the sentiment, but the hon. Gentlemans amendment would create practical difficulties if approved. Suggesting that a surplus can be applied only in the interests of class members could cause problems, depending on who those class members might be.
Let us say, for instance, that the class members are policyholders of an insurance company, customers of a bank or a group of bondholders. The demographics of such a group are likely to be extremely varied, so it could be hard to pin down a suitable purpose that benefits them and not non-class members.
A manner...expected to benefit class members
might therefore be too vague and could create a huge amount of uncertainty as to which body should benefit. That could create an unnecessary amount of lobbying and time-consuming decision making, and could lead to the drawing of fine distinctions between deserving claimants. An independent court might also find it difficult to make those decisions.
No decision has been taken on how an undistributed surplus should be spent, but it is possible that there should be a defined destination or body with suitable purposes, which is why the Treasury needs to retain the discretion to provide for that. For example, a surplus, or part of it, could be handed back to the defendants, but it could also go to a charity, to an organisation such as the proposed consumer financial education body, or to the social fund to improve access to affordable credit for those on low incomes. It seems premature to the Government to close off options at this stage, and the best course is to consult widely on how an undistributed surplus should be dealt with. The Government certainly intend to do that, and I hope that my clarification will reassure those who are following our proceedings.
Given the practical difficulties with the hon. Gentlemans amendment, I hope that he will withdraw it, while recognising the policy intention behind our proposals.

Mark Hoban: There clearly needs to be consultation. People need to be comfortable that the mechanism for identifying the cause or purpose will be sensible and that the right checks and balances are in place. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 ordered to stand part of the Bill.

Clause 24

Rules of court about collective proceedings

Mark Hoban: I beg to move amendment 68, in clause 24, page 27, line 19, after about, insert disclosure and.

Joe Benton: With this it will be convenient to discuss amendment 69, in clause 24, page 28, line 12, at end add
(8) Rules under subsection (2)(a) must require the court only to make a collective proceedings order if it is satisfied that
(a) collective proceedings are the most appropriate means for the fair and efficient resolution of the common issues of fact or law;
(b) there is a person, certified or authorised body suitable to be authorised to bring collective proceedings as representative claimant; and
(c) the collective proceedings have a real prospect of success.
(9) Rules under subsection (2)(d) and (e) must require the court, when considering the suitability of any proposed representative, to be satisfied that such person
(a) would fairly and adequately represent the interests of the class;
(b) does not have an interest that is in conflict with the interests of class members;
(c) has prepared a plan for the collective proceedings that sets out a method to the satisfaction of the court for bringing the proceedings on behalf of the class and for notifying class members of the fact and progress of the proceedings;
(d) has in place adequate resources for the conduct of the collective proceedings, which shall include adequate resources for the conduct of the collective proceedings (including any adverse costs awards).
(10) Rules under subsection (2)(j) shall provide
(a) that the representative shall be liable for the claimants costs, except
(i) where the court authorises a sub-class representative, who shall be liable for the costs associated with the determination of the issues common to the sub-class;
(ii) the costs of the determination of class members own individual claims, for which individual class members shall be liable;
(b) that the general rule shall be that the unsuccessful party shall pay the costs of the successful party, although the court may make a different order;
(c) that security for costs shall be available against a claimant who is acting as a representative if there is reason to believe that he will be unable to pay the defendants costs if so ordered to do.
(11) Rules under subsection (2)(h) must provide that a party to collective proceedings may obtain disclosure of documents in the possession of class members other than the representative with the permission of the court.
(12) Rules under subsection (2)(i) must provide that
(a) a settlement of collective proceedings shall not take effect unless the court conducts a hearing as to the fairness of the proposed settlement, upon notice to the parties prescribed under the rules, and approves the contents of the settlement agreement on terms which it considers to be appropriate; and
(b) when approved, a settlement
(i) binds every class member who has not opted out of or been excluded from collective proceedings;
(ii) binds every class member who has opted into collective proceedings; and
(iii) does not bind a party to the collective proceedings in any subsequent proceeding between the party and a person who opted out of, had been excluded from or who has failed to opt into collective proceedings.
(13) The rules may not permit a person to substitute as a representative in proceedings brought on an opt-out basis unless such person is a body exercising public functions and is authorised to act as representative by the Lord Chancellor under section 18(7)(b)..

Mark Hoban: Amendment 68 leads into the proposed new subsections that would be added by amendment 69, which is a lengthy amendment.
Clause 24 concerns the rules of court. In previous debates, we have discussed what those rules should be, their importance, and the way in which they will have primacy over the regulations that are referred to in clause 22. It would be welcome if there were a number of safeguards in the Bill to help to give further structure to those court rules.
The rules give the court the power to make provision on, among other things, collective proceedings orders, the determination of whether a person is treated as having opted in or out, and arrangements for authorised persons. Again, it appears that the cautious approach of the Civil Justice Council has been ignored, as the Bill departs from that significantly. Let me be clear, however, that the council endorses the approach of using rules of court. Its report says:
The majority of the proposed procedural reforms could be introduced by Rules of Court...developing existing procedure and principles laid down in case law.
When doing that, however, it is important that there are adequate safeguards, but they are conspicuous in their absence from the Bills provisions on rules of court. Amendments 68 and 69 would insert additional safeguards into the Bill.
Amendment 68 would ensure that the rules of court would make provision about not only evidence, but the proper disclosure of that evidence. Additionally, proposed new subsection (8), which is in amendment 69, would add safeguards on the approval of a collective proceedings orders, while proposed new subsection (8)(a) would ensure that that was used as a last resort. The Minister made the point earlier that it should be a last resort, and that the other regulatory routeseither the FSA or the Financial Ombudsman Serviceshould be exhausted first. Solutions driven by regulators or firms will always be preferable to using the courts. That is the intent behind proposed subsection (8)(a).
Proposed subsection (8)(b) is to ensure that there is a suitable representative waiting to take up the case. Proposed subsection (8)(c) is to ensure that there is a real point behind the collective proceeding and that there is a prospect of success. They reflect the recommendations of the Civil Justice Council. It wrote in its report:
It is apparent from a comparative analysis that a certification stage is an essential element of any mature collective action mechanism. Certification ensures that the court, consistently with the requirement to manage actively cases consistently with the overriding objective, is able to assess and decide on the most appropriate mechanism through which a claim should progress i.e., as an opt-in, opt-out, traditional unitary action, or through a group litigation order. It enables the court to ensure that any claim progresses in a fashion which best facilitates effective use of court resources and best facilitates effective access to justice for both claimants and defendants alike.
Proposed new subsection (9) adds safeguards to the representative person provisions, stipulating in particular that they have a proper plan, no conflicts of interest and that they are adequately resourced to carry the process through. It reflects one of the concerns mentioned in the councils report, to ensure that the process was not used for non-meritorious, vexatious or spurious claims. By ensuring that it is built into the court rules, it gives added protection about the use to which the new process will be put.
Proposed new subsection (10) introduces some rules around costs. It adds safeguards that the representative is responsible for the claimants costs and enshrines the loser pays principle. The Civil Justice Council had this to say about loser pays or so-called cost shifting:
Cost-shifting is a deterrent against speculative or so-called blackmail litigation, unless the claimants are impecunious, in which case the courts existing powers to award security for cost should provide protection for defendants against such blackmail claims. Where the court determines that there should be full or substantial part cost-shifting, parties will need to demonstrate to the court that they are good for the money, or are adequately insured.
Again, it is a further safeguard to ensure that sensible claims are brought. It also ensures there is a balance so that claimants who do not have sufficient financial resources are covered in some way.
Proposed new subsection (11) ensures that there is proper disclosure of documents to include those held by individual claimants, not just the representative. Proposed new subsection (12) allows the court to conduct a hearing into a settlement of collective proceedings to ensure that it is fair. On this the Civil Justice Council said:
Where a settlement is proposed and achieved, and experience in other jurisdictions strongly supports the conclusion, it is recommended that such a settlement should not be valid and binding unless it is approved by the court following a fairness hearing. The courts approval is necessary in order to protect the interests of the absent claimants, who will be bound by the settlement. The fairness hearing should not simply review the terms of the settlement for fairness but also determine how absent claimants should opt in to the settlement, what reasonable steps should be taken to advertise for absent claimants to notify them of the settlement,, what evidence is required to claim a share of the settlement, what the limitation period should be set to claim a share and to determine who should administer the judgment.
That reflects the situation where there is an opt-out proceeding where the court might award the damages on an aggregate damages basis, but we then need to ensure that the right mechanism is in place to facilitate the claims being made by people whose circumstances are covered by the case. Clearly, on an opt-in basis, we will know who the individuals are, and the allocation of damages can therefore be much more straightforward.
Proposed new subsection (13) is about who can act as a representative. It states:
The rules may not permit a person to substitute as a representative in proceedings brought on an opt-out basis unless such person is a body exercising public functions and is authorised to act as representative by the Lord Chancellor under section 18(7)(b).
That is to say that some bodies will have a legitimate public interest in bringing such cases. Again, to return to the JJB Sports group litigation order, Which? was seen as a body that had a legitimate public interest. What we are trying to tackle is how claims management companies may hijack that process for their commercial interest, and not have a public interest in acting as a representative. In a discussion on an earlier set of amendments, the Minister referred to the way in which the rules would be developed to deal with who can be a representative.
Amendments 68 and 69 are to provide some safeguards around what will be in the court rules to tackle some of the concerns that have been raised by bodies interested in such proposals. They are also to ensure that one of the concerns of the Civil Justice Councilthat the measure should not be used to encourage vexatious, spurious or indeed blackmail claimsis reflected in the detail of the rules.

Joe Benton: Just to clarify for the Committee, I should say that we are taking amendments 68 and 69 together. Amendment 68 becomes the lead amendment, which has been duly proposed.

Rob Marris: On amendment 69, let me say briefly to the hon. Member for Fareham that I am not sure who his scriptwriter isbut I suggest that he gets a new one, in spite of his reference to the Civil Justice Council. Almost all amendment 69 is covered either by existing rules of the court, whether in a county court or in the High Court, or by equity.
For example, in proposed new subsection (8)(a) in amendment 69, it is pretty obvious whether a judge would allow representative proceedings if they were not satisfied with the most appropriate meansof course the judge would not. The amendment goes on like that, and I urge the hon. Gentleman to withdraw it because someone has led him up the garden path.

Ian Pearson: We are making excellent progress this afternoon, and I am happy to give the Governments response to amendments 68 and 69 together. The hon. Member for Fareham spoke mostly about the latter, but let me first cover the former, which adds to the list of points that may be covered in civil procedure rules.
The rules about disclosure and inspection of documents are in the civil procedure rules. Disclosure is an ordinary part of any trial process. The parties will disclose the documents that they have or have had in their possession in accordance with court directions. Disclosure is intended to ensure that all relevant evidence can be put before the court. The question is whether the power to make court rules will be used to modify the rules on disclosure for the purposes of collective proceedings. For example, there might be a need to ensure that class members are deemed to be parties to the action for the purposes of disclosure.
However, there are already sufficient rules in the existing civil procedure rules. Disclosure orders can be made against third parties, and if more rules are needed, there is already a power in primary legislation to make them in this context. The amendment is therefore unnecessary.
Amendment 69, as the hon. Gentleman explained, sets out some detail, practice and procedure for court rules. It contains a sensible set of options, including many provisions of the kind that the rule committee of England and Wales will consider. Indeed, some of them are already common, as my hon. Friend the Member for Wolverhampton, South-West pointed out. No doubt the rule-making bodies in Scotland and Northern Ireland will also work through such safeguards. They will need to consider carefully how they should be expressed and whether there are any unintended consequences.
I do not take issue with the need for many of the procedures in amendment 69. However, I do not agree with hardening requirements for court rules in primary legislation in a way that could cut across the careful work of the rule-making bodies. That is why we have illustrated in clause 24 what the rules can cover without putting that into the Bill. We have done so for three reasons.
First, Parliament has already set out the procedure for making court rules in the Civil Procedure Acts and appointed a committee of experts, the civil procedure rule committee of England and Wales, to make the court rules and lay the legislation before Parliament. A sub-group of the committee contains eminent specialists in that area of law, including members of the judiciary, senior practitioners and academics, and they are well placed to draft appropriate rules. The court rules will have to work in Scotland and Northern Ireland as well. They must therefore be drafted in the normal way by the Court of Session in Scotland and the Rules Committee of the Supreme Court in Northern Ireland.
Secondly, the bodies are considering generic rules for collective proceedings. The Financial Services Bill should not be used to predetermine the content of generic rules. That would inevitably lead to two sets of rules, one applying to financial services and another to all other proceedings, creating inefficiency and inconsistency, which I do not think we should support. Although I appreciate the hon. Gentlemans hard work and his desire to do the work of the civil procedure rule committee, they are the best people to decide and determine those rules.

Mark Hoban: That is exactly the problem. The Government have introduced a process on a sectoral basis; the Ministry of Justice said that it would not introduce a generic process. The Minister justified the process that we are legislating for with a sectoral response, but the sector does not know the rules by which it will operate. The sector requires clarity.
Given that the Ministry of Justice has rejected a generic application and that this is the first sector where the rules will be applied, it is reasonable for people to expect that there will be rules reflecting the concerns of the sector being used as a guinea pig for the new process.

Ian Pearson: Again, let me explain what we are trying to achieve. I take issue with what the hon. Gentleman said. Previously, he argued in favour of removing some of the Treasurys powers of discretion to make regulations. I have been at pains to stress that the rules that the various bodies are working on, including the civil procedure rule committee, are generic, but that we are taking a sector approach to implementation. That is why we needed powers to tailor rules and ensure that they have regard to specific circumstances: when we discussed previous clauses, I made it plain that the Treasury needed those powers.
In many cases, when we are talking about legislation in this House, we are talking about the balance between what is contained in primary legislation and what appears in secondary legislation. A lot of legislation is about providing an overall legislative framework as a structure into which contents are put. A lot of the detail that sometimes needs to be changed and updated in the light of circumstances is rightly there in secondary legislation, because it is a lot easier and more appropriate to alter.
That is essentially the situation. We have a high-powered committee that is looking at and drafting appropriate rules in this area. The civil procedure rules committee is required by Parliament to consult on the draft rules, which is the third point that I want to make. Having rules in the Bill would mean that the consultation that is already envisaged and is contained in the Civil Procedure Act 1997 cannot take place. Having said that, I fully recognise that this is a new procedure, and that there is a need to consult on the rules and to get them right. There is a particular requirement to ensure that the rules are not only right generically, but that they are appropriately tailored to the circumstances of the financial services sector. Inevitably, the rules will need to be updated in the light of experience under the procedure set out in the Civil Procedure Act and in accordance with the various procedures in Scotland and Northern Ireland. That is why it is right that the rules should not be in the Bill.
The Bill includes a backstop power to enable the Treasury to set out supplementary criteria that can be tailored to the financial services. At the risk of labouring the point, it is important that the Committee recognises that. The Government intend to consult fully on the regulations, including discussions with experts on civil procedure, so that such issues receive the fullest possible debate. I realise that there is a natural desire to want to know the detail of everything immediately, but that is not how most legislation works. We have the right balance between what is in the Bill and what is coming down the track in terms of further work at a more detailed level, explaining how things will operate on a more technical basis.

Mark Hoban: We can debate on the proper process for consultation, but in most situations one would expect there to have been wider consultation about a radical measure such as this with the sector directly concerned, than has been the case to date. Returning to the generic rules, when the Minister spoke earlier, he did not refer to the fact that the rules were generic for collective proceedings matters. The challenge is that the Ministry of Justice has rejected a generic collective proceedings law, and it will be applied on a sector basis. From what the Minister said, my assumption was that the rules to be developed would be specific to the financial services sector, which would then be tweaked by the reserve powers. That was the impression that the Minister gave me earlier because he did not use the phrase generic rules but rather talked about rules relating to the proceedings. He spoke about generic rules during the discussion on the amendments. Is he saying that the Treasurys reserve powers will take the generic rules and tailor them specifically for the financial services sector? Will those rules under the auspices of the Ministry of Justice be generic rules that can be applied in any circumstances where the Government choose to use collective proceedings?

Ian Pearson: That is exactly what I am saying. I am sorry that the hon. Gentleman did not appreciate what I said earlier and I apologise to the Committee if I was not sufficiently clear. The work that is being done by the civil procedure rules committee centres on rules that will be generic, and it will consult on them. I kept making the point that the Treasury has a backstop power to set out supplementary criteria. That is explicitly because these are generic rules that will apply to other sectors where collective proceedings orders might be introduced. We want to make sure that the rules that relate to the financial services sector are tailored and specific, which is why we need the powers.
That is why amendments 68 and 69 should be resisted. They would distort the development of more comprehensive rules, and the rules need to be developed in more detail by those appointed and best placed to do so. I emphasise that the rules will be subject to the fullest possible consultation and debate before they are finalised. There will be ample opportunity for the industry and others to make their views known. It would also be inappropriate for them to be set in primary legislation, because that would mean that they could not be updated quickly in the light of changing experience and circumstances. I therefore fundamentally believe that the hon. Gentlemans amendment is misplaced. However, if this debate has helped clarify matters for the Committee and for those who follow these proceedings, it has been helpful.

Mark Hoban: I may be having trouble understanding, but I believe there is a wider problem regarding the lack of transparency in relation to the process and how we are going to progress from the Bill to a workable set of rules. I assume that, where the Bill contains rules that stem from a requirement to introduce collective proceedings orders for the financial services sector, they will be specific to the sector and not generic. The Minister has referred to backstop powers, which are clearly more important than I previously understood them to be, given that the rules will be generic rather than specific to the financial services sector. We should also bear in mind that the Government actually rejected the process of generic collective proceedings rules. That adds to our confusion that the committee that the Minister referred to is developing generic rules when only one sector is actually implementing the process. It would be useful to know how widespread the Government expect the use of those powers to be.
On the consultation process that the Minister outlined and the time scale, we have not discussed the timetable for the implementation of the provisions. Will the consultation process on the court rules include representatives from the financial services sector as well as the people that the Ministry of Justice generally consults on such things? Does the Minister expect the consultation on the Treasury regulations to happen in parallel with that on the court rules or will it happen subsequent to the introduction of court rules? When does he think the industry will be in a position to see both the draft rules and draft regulation?

Ian Pearson: Let me have another go and respond to the specific points made by the hon. Gentleman. I hope that he now realises why the Government want to resist his amendments and accepts that they are not appropriate in such circumstances.
There is no intellectual difficulty with saying that, as a Government, we have decided not to move forward with collective proceedings generically, across all sectors, but saying that in sectors where we think there is a case for proceeding there should be some generic rules, to ensure consistency. That seems sensible, as does saying at the same time that there might be some sector-specific circumstances to which courts will need to have regard, so there is a requirement to build on to the generic rules established. That is what we are proposing.
I want to assure the hon. Gentleman and others that there will be full consultation on the matter. We want to consult as widely as possible, including financial stakeholders. Clearly the Treasury consultation will be informed by the consultation on court rules, so although there can be some parallel processing it is right to consult on the court rules first. We would seek to gain the views of the financial services industry on those rules and take them into account when designing the Treasury rules as well. I expect the Treasury rules to follow on from the consultation on the court rules.
The intention is to consult on the court rules later this year, with a view to seeing implementation in 2011that is my understanding of the time scale at the momentbut I stress that there will be ample opportunity for interested parties to contribute to the consultation exercise. We want to make sure that we get this right and recognise that it is a new departure and, therefore, it is right that we spend a significant amount of time talking to stakeholders and other interested parties to make sure that their views are properly taken into account when it comes to developing the new provisions.

Mark Hoban: I am grateful to the Minister for that explanation, and of the process in particular, which will reassure people that the proper time will be given to consider the proposals. Given that the court rules are generic to the process, rather than specific to the financial services sector, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Rob Marris: I want a quick run around the block with the Minister on counter-claimsthe concept is slightly strange, but I can understand how it might happenand, more specifically, on the costs of counter-claims. I am referring here to paragraphs (i), (j) and (f) of subsection (2).
The issue involves the opt-out procedure. If someone fails to opt out, they are party to the action and are a claimant. If the defendant successfully counter-claims, there will be a costs order in the usual manner against the claimants. We now have someone who never went near the action but who did not read the blurb and did not opt out, so they are part of the claim; there is a successful counter-claim against them and, lo and behold, someone comes knocking on their door asking for costs. Could the Minister elucidate that a little because, were that to be the case, it would not go down well with our constituents? In spite of the considerable detail in clause 24, that is not covered as far as I can tell.
The obverse of that is that under 24(2)(f) there can be a representative counter-claim on an opt-out basis. There is a representative counter-claim on an opt-out basis against a bunch of claimants. The counter-claim fails, so the claimants who have successfully resisted that counter-claim in the normal course of events, seek their costs against those who made the counter-claim. Those who made the counter-claim included those people who failed to opt-out because it is not now a counter-claim, and therefore are part of that unsuccessful counter-claim. Because of counter-claims, they could end up with a costs bill for a case they never went near. Will the Minister at some point address the issues raised by those examples? Perhaps not today, because these are complex issues and that is the difficulty with putting complex issues in the Bill. I am concerned about people who did not opt-out potentially ending up with a cost bill against them, especially in a counter-claim situation.

Ian Pearson: If I understand my hon. Friend correctly, I would be likely to have similar concerns. My understanding is that the normal rules on costs will apply, as they do in proceedings. He cited clause 24(2)(i). As he will be aware, that is one of an illustrative list of issues that will be considered when determining the rulesthe point that I was making to the hon. Member for Fareham. Again, as I said earlier, there will be a full consultation on the rules, so there will be ample opportunity to take account of the views of my hon. Friend and of others concerned about these particular issues. In passing clause 24 today, we are not committing to anything other than providing an illustrative list, which will be considered as part of regulations that will be drawn up, debated and discussed in the normal way. I hope that provides him with assurances that his views can be taken into consideration.

Tom Watson: Does my hon. Friend agree that my hon. Friend the Member for Wolverhampton, South-West is an utter genius and may have spotted a flaw in the Bill? In that unlikely scenario, would the Minister commit to get his officials to look at it and perhaps come back on Report to make sure that his fears can be allayed?

Ian Pearson: I am happy to acknowledge the contribution that my hon. Friend the Member for Wolverhampton, South-West makes to the Committee and to the House in general. He is widely recognised as an expert on many matters. His views are always of great interest. Ministers and officials always take what he says with the utmost seriousness. On this particular point, the comments I have made that these matters will be considered in the future as part of the process of determining the rules, should provide him with assurances that his expert views will be taken into consideration by some very eminent people, whom we have put in charge of drawing up the rules. I hope that provides sufficient assurances.

Question put and agreed to.

Clause 24accordingly ordered to stand part of the Bill.

Clause 25

Definitions

Ian Pearson: I beg to move amendment 85, in clause 25, page 28, line 34, at end insert
(8) The Treasury may by order amend subsection (2)(b) so that, in Scotland, the definition of the court is extended to include the sheriff.
(9) An order under subsection (8) is subject to negative resolution procedure..

This amendment gives the Treasury a power to enable collective proceedings to take place in Scotlandbefore the sheriff.
I propose the amendment at the request of the Scottish Government. The amendment will give the Treasury a power to enable collective proceedings to take place in Scotland before the sheriff court. At present, the clause provides for collective proceedings to be heard in the Court of Session only. The reason is that the Scottish Government are currently considering recommendations about class actions generally in a report by the Scottish civil courts. Decisions about the applicability of class actions in Scotland have not yet been taken and there is a question of whether they should be combined to the Court of Session only. The power will enable class actions to be extended to the sheriff court if the Scottish Government find it appropriate to do so in future.

Amendment 85 agreed to.

Clause 25, as amended, ordered to stand part of the Bill.

Joe Benton: Before the Committee breaks up, I point out that for both sittings on Thursday we have Committee Room 11, so we should all be a little warmer.

Ordered, That further consideration be now adjourned.(Mr. Mudie.)

Adjourned till Thursday 14 January at Nine oclock.